Many of the recent changes in the taxation of buy to let rental businesses do not apply to property businesses that qualify as furnished holiday lettings (FHL).

In particular the restriction on deductibility of finance costs that started to apply from 2017/18 does not apply to furnished holiday lettings. It may be worth considering investing in such properties to take advantage of a number of other generous tax breaks.

Tax reliefs that apply to furnished holiday letting businesses

Furnished holiday letting businesses are treated as a trade for income tax purposes and accounts should be prepared in the same way as for any other trading business.

Capital allowances are available on white goods, furniture and other portable items such as cookers, beds. The cost of new equipment purchases up to £200,000, can be deducted from the net profits of the business for that period.

Profits count as earned income for pension purposes

CGT entrepreneurs’ relief applies on disposal of the holiday rental business

Capital gains may be rolled over into FHL property

CGT gift holdover relief available on the gift of the rental business.

At present, the Inheritance tax treatment of a FHL is somewhat uncertain. HMRC maintains the view that FHL’s do not qualify as business assets eligible for 100% inheritance tax relief because they are within the exclusion for investment assets.

What is a furnished holiday letting (FHL) businesses?

There are strict rules for a property rental business to qualify as furnished holiday lettings. The most important conditions are:

Property must be situated in the UK or European Economic Area (EEA)

Furnished and let on a commercial basis

Available for letting for 210 days a year

Actually let for 105 days a year

Not normally let for more than 31 consecutive days to the same person (i.e. short lets)

In other words lettings in excess of 31 days are excluded from the 105 day test as are periods let to family and friends on a non-commercial basis

Averaging Election

For individual landlords the 210 day and 105 day tests apply to the tax year or the first 12 months on commencement of the rental business.

If the 105 day test is not met it is possible to make a “pooling” or averaging election where several FHL properties are rented out in the tax year. You can elect to apply the letting condition to the average rate of occupancy for all the properties you let as FHLs. There are separate elections or pools of UK and EEA properties.

For further information on Furnished Holiday Lettings, please contact us on 01366 858538 or email info@jetaccountancy.co.uk.

If you take more money out of a company than you’ve put in – and it isn’t salary or dividend – it’s called a director’s loan.

A director’s loan account cannot be used by sole traders. It is, as the name suggests, a loan account for company directors.

It is important to note that a director’s loan account is not the same as your business bank account or your personal bank account. Instead, it is a “virtual” account that only exists as a means of keeping track of the money that flows between you and your company. This is because, unlike sole traders, your limited company is separate from you.

What this means is that the money your limited company earns belongs to the company, not to you. Of course, there are ways for you to withdraw money from the company, and the director’s loan account keeps track of the interactions between you and the company.

Overdrawn account

You will owe any money you took from the company at the year end, as you will pay dividends after tax. So many people get caught out by this and end up without enough profit left over after tax to fully clear the director’s loan account with dividends. If you have an overdrawn director’s loan account you must declare this on your Corporation Tax return and pay even more tax. The current rate of tax on the director’s loan is 32.5%.

However – it’s important to note that if you are able to repay your overdrawn amount within nine months and one day of your accounting year end, then you will have no additional tax to pay. Even though you will still have to declare the loan on your Corporation Tax return, you will get tax relief on the amount. HMRC have ensured that directors cannot circumvent this measure by taking the money out again as soon as they have paid it. If you withdraw the amount you repaid within 30 days, the loan counts as unpaid.

If you overdraw your director’s loan account by more than £10,000 (HMRC can change this amount) then it can be classed as a benefit as you are getting a loan from your company without paying any interest. This means you must declare it on your personal tax return and pay income tax. You can avoid this by paying interest in your director’s loan equal to or in excess of the rate demanded by HMRC.

This is particularly important to bear in mind if you use your director’s loan account to lend to others as well, such as your spouse, relative or anyone else closely connected to you.

If you’d like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01366 858538 or email us at info@jetaccountancy.co.uk.

What is it? The Marriage Allowance lets you transfer £1,150 of your Personal Allowance to your husband, wife or civil partner if they earn more than you,

This reduces their tax by up to £230 in the tax year.

To benefit as a couple, you (as the lower earner) must have an income of £11,500 or less.

You can backdate your claim to include any tax year since 5 April 2015 that you were eligible for Marriage Allowance.

Who can get it? This is the most important factor as only people with these specific circumstances will be able to apply:

You’re married or in a civil partnership.

One of you needs to be a non-taxpayer, which usually just means earning less than the £11,500 personal allowance.

The other needs to be a basic 20% rate taxpayer (higher or additional-rate taxpayers aren’t eligible for this allowance). This means you’d normally need to earn less than £45,000.

You both must have been born on or after 6 April 1935. If not, you may be eligible for Married Couple’s Allowance.

New. A rule that came into effect from Wednesday 29 November 2017 allows you to claim even if your partner has died since April 2015 and all the other criteria above apply.

It won’t affect your application for Marriage Allowance if you or your partner are currently receiving a pension or living abroad.

In most cases, the allowance will be given by adjusting the recipient partner’s personal tax code. The partner who transferred their personal allowance will also receive a new tax code, if employed. If the recipient partner is in self-assessment, it will reduce their self-assessment bill.

Already applied in the last tax year? You’ll automatically get the marriage tax allowance this year and only need to inform HM Revenue & Customs (HMRC) if your circumstances have changed making you no longer eligible.

For further information on this or if you wish us to apply on your behalf, please do not hesitate to contact us on 01366 858538 or email info@jetaccountancy,co.uk.

The cost of an annual staff party is allowed as a deduction for tax purposes. However, the cost is only deductible if it relates to employees and their guests, which would include directors in the case of a company, but not sole traders and partners in the case of unincorporated organisations.

As a company director, you are entitled to provide an annual event for yourself, any staff you employ, and your partner, and reclaim the costs against the company, as long as the cost per head does not exceed £150 (including VAT).

The cost per head can include accommodation, transport, and food and drink – but must not exceed the £150 threshold.

You may decide to hold several events throughout the year, but the total claim for all events must not exceed this threshold.

To calculate the cost per head, HMRC states that you should ‘divide the total cost of each function by the total number of people (including non-employees) who attend in order to arrive at the cost per head.

Furthermore, an employer may provide employees with a seasonal gift, such as a turkey, bottle of wine or a box of chocolates at Christmas. All of these gifts are considered to be trivial and as such are not taxable.

One cautionary regarding VAT and staff gifts is that VAT is chargeable by the employer when an employee receives gifts totalling more than £50 in a year.

Every employer has automatic enrolment duties. They need to assess their staff, put them into a workplace pension scheme if they meet certain criteria, write to them to tell them what they have done, and complete and submit a declaration of compliance with The Pensions Regulator (TPR).

To date, more than 8 million people have been automatically enrolled in a workplace pension by more than 600,000 employers. And with hundreds of thousands more employers due to reach their duties start date by February 2018, the number of people automatically enrolled will continue to rise.

However, an employer’s workplace pension duties do not stop with declaring compliance. And with TPR conducting stop checks on employers across the country to make sure they are complying with their duties, it is important you are aware what needs to be done on a regular and ongoing basis to ensure you comply with the law.

What are your ongoing duties?

You will need to pay regular contributions into your chosen pension, monitor the age and earnings of your staff and enrol eligible staff, process any requests to join or leave the scheme, keep and maintain accurate records. You will also need to re-enrol eligible staff into an automatic enrolment pension scheme every three years.

We can take the whole burden of auto enrolment off your shoulders. We offer a fixed fee Auto Enrolment Service as an add-on to our fixed fee Payroll Services. We can take care of the setting up and the ongoing administrative burden, ensuring that your business complies with the new regulations. Contact us on 01366 858538 for more information.

The launch of HMRC’s Making Tax Digital for Business programme has been pushed back until 2020. HMRC had planned to mandate the use of digital tax records for businesses by April 2018, but concerns were raised that the deadline did not provide enough time for businesses to prepare. As part of the changes, only businesses with a turnover above the VAT threshold will “have to keep digital records, and only for VAT purposes” from 2019, and businesses will not be asked to keep digital records for other taxes until “at least 2020”. The government also said that for small businesses, digital tax returns will be voluntary.

The Government’s “Making Tax Digital” policy has been dropped from the Finance Bill after opposition from taxpayers, business groups and senior political figures across all parties. The initiative would have forced millions of businesses and self-employed people to file multiple tax returns each year. Anita Monteith, tax manager at ICAEW, said: “This is a sensible decision by government. Making Tax Digital plans remain controversial and need more scrutiny by those who will be affected, and most importantly proper parliamentary debate – a clear roadmap as to how MTD will work in practice is needed”. The system was due to be rolled out next April and pilot schemes were already under way. Mike Cherry of the FSB said the next government will be asked to rethink the plans carefully following the election while Chas Roy-Chowdhury, head of tax at the ACCA, said the delay would provide space for a proper debate. A spokesman for Phillip Hammond would not confirm that the plans would be reintroduced once the election was over. A tax on dividend incomes and new rules for non-doms were also removed from the Bill, leading to accusations that the Conservatives were breaking their promise to crack down on tax avoidance.

Personal tax-free allowance to rise as planned to £11,500 this year and to £12,500 by 2020.

Tax-Free Childcare will soon be available to working parents. It will provide up to £2,000 a year in childcare support for each child under 12. Parents will be able to receive up to £4,000 for disabled children up to the age of 17. Parents of younger children will be able to apply for the scheme first, with all eligible parents able to access the scheme by the end of the year. Working parents in England will also be able to apply for an additional 15 hours of free childcare for three and four year olds, bringing the total to 30 hours a week.

The Lifetime ISA will be available from 6 April this year. The Lifetime ISA will allow younger adults to save up to £4,000 each year and receive a bonus of up to £1,000 a year on these contributions. Funds can be withdrawn tax-free to put towards a first home or saved until a person turns 60.

Small Businesses and landlords under the VAT threshold will have an extra year to prepare for Making Tax Digital (MTD). Unincorporated businesses (businesses owned privately by one or more people) that have an annual turnover below the VAT registration threshold will have until April 2019 to prepare before MTD becomes mandatory. Under MTD, businesses will use digital software to keep tax records and update HMRC quarterly.

The main rate of National Insurance Contributions (NICs) for the self-employed will increase. Currently, the self-employed may have to pay both Class 4 and Class 2 NICs: Class 4 NICs at 9% are paid on profits between £8,060 and £43,000. Class 2 NICs are paid on profits of £5,965 or more. From 2018, Class 2 NICs will be abolished. Class 4 NICs will rise to 10% in April 2018 and to 11% in April 2019. Taken together, only a self-employed person with profits over £16,250 will have to pay more as a result of these changes. This change reflects the fact that the differences in contributory benefit entitlement between the self-employed and employees are now small, following the introduction of the new State Pension in April 2016. In the summer, the government will also consider whether there is a case for greater consistency in parental benefits between the employed and self-employed.

Tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018. This will reduce the tax difference between the self-employed and those working through a company. Typically, general investors will need over £50,000 worth of stocks and shares outside an ISA to be affected.

A few of our clients will receive a letter through the post shortly to remind them the deadline for submitting their self assessment tax return online is 31 January 2017.

Please let us have your accounting records before 31 December so we can ensure your return is filed before the deadline.

Any returns submitted after this date incur an automatic £100 penalty from HMRC, an additional 5% of tax due is added after 30 days and if your return is still not submitted after 3 months, you will be charged further penalties of £10 a day.